Understanding the Law of Large Numbers – Part 2

Insurance companies have many different ways to determine what the cost of a policy should be. For example, a particular individual living in a certain place, which is of a certain age, and drives a certain kind of car.
One way that some people pay less in insurance at a younger age than others is that they have a record of safe driving for a number of consecutive years. This can lead to very inexpensive car insurance for you if you don’t get into accidents and don’t get tickets. The insurance company can offer a lower cost of policy due to the fact they don’t have to worry about this particular driver getting into an accident. This is a reward of a certain kind for people who are good drivers.
Let’s look at an example in health care insurance. It might be more risky for a four person family to try and self insure themselves, due to the fact that one of them might need a surgery later in life. If this were to happen, then the family could be in serious financial trouble. The family could try to estimate the costs of their medical bills based on what they have had to pay in the past. They could also compare to other families and what has been average for them. This could work, but it is very risky due to how much medical bills can cost in today’s world.
If the family were self insured, they would be the only resource to cover the bills that were accumulated. On the other hand, if they had insurance, then they have someone else that will step up to bat for them, just as long as they pay their bill each month. There is really no way that any individual can tell when or if they will ever get hurt. This is something that we just can’t do. Our best option is to try and find affordable insurance for ourselves and our families.

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